Does this make sense to you...? - PeachParts Mercedes-Benz Forum

blackmercedes · #1 12-03-2003, 03:40 PM

A friend of mine's son graduated from university in the spring and started a job with Xerox a few months ago. He's doing okay, enjoying the job and had a ball during training. I had the same job years back and highly recommend it as "get your feet wet" experience for new B-School grads. The training is incredible, and sales training will serve you well in all aspects of business.

However, we got into quite the discussion last evening concerning his newest aquisition: a 2004 Acura MDX.

In Canada, this SUV costs about $55K with taxes. I was a little shocked that someone so fresh out of school would pay so much for a new car. Here's his take on it:

In some B-School class he learned that in lease vs. buy decisions, you generally should purchase appreciating assets and lease or rent depreciating assets. Of course, there is an NPV calculation that takes salvage value and other variables into consideration, but it's a rule of thumb to some extent. So, cars should be leased. Well, that does make some sense. On we go...

Well, the MDX has a very high residual value, so his payments are pretty decent for that price of SUV (about $600 a month with taxes) and he can afford the monthly payment. Here's where we part company. At the end of the four years, he has to pay $30,600 plus taxes to buy the SUV out. He will either re-lease it or simply lease a new one. In the future he sees having to pay $600-$700 a month for a car just as a natural expense that will never end. Kinda like taxes or insurance.

What of this thinking? Am I funny in buying a car, paying it off in 3-4 years, and then driving it for another 5-10 with no payments? Is it normal now just to build a significant payment into your budget and expect that it will be a life-long expense?

This young fellow looks at me like I'm completely "tuned-out" to the "new" thinking concerning automobiles and their financing. I had always thought this to be a less than prudent financial decision, but evidently I am in a shriking group of "old people."